Qantas Airways Limited (ASX:QAN) shares plunge despite hitting record quarterly sales

There’s just no pleasing investors today with this much blood on the street.

The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index has crashed 2.1% in late morning trade with every sector trading in the red.

The sell-off is so bad that you can count with one hand the stocks that are gaining ground and it’s mostly the defensives like gold miners St Barbara Ltd (ASX: SBM) and Resolute Mining Limited (ASX: RSG), and waste management group Cleanaway Waste Management Ltd (ASX: CWY).

Our national carrier Qantas Airways Limited (ASX: QAN) couldn’t have picked a more inauspicious day to release good news with the stock nose-diving 3.6% to $5.42 at the time of writing even as it announced a 6.3% uplift in quarterly revenue to a record high of $4.4 billion.

What’s more, travellers aren’t put off by the volatile geopolitical environment with forward bookings climbing 8% compared to the same time last year as Qantas kept capacity steady.

I think most airlines are reluctant to add new capacity in the current climate given the very devasting airline war from a few years ago that hit the bottom lines of Qantas and Virgin Australia Holdings Ltd (ASX: VAH).

But it isn’t all good news. The higher oil price is taking some gloss off the result and management has hedged 76% of its FY19 and 39% of its FY20 fuel purchases.

The jet fuel forward price is $130 per barrel for the rest of FY19 with the group’s full-year cost to fuel its jets rising to $4.1 billion compared to $3.2 billion in the previous year.

However, it’s not only oil that is squeezing its margins. Qantas is also feeling pressure from having to pay higher commissions to travel agents and the weakening Australian dollar.

I wonder if Flight Centre Travel Group Ltd (ASX: FLT) will benefit from the higher commissions.

The good news for shareholders (but bad news for the traveling public) is that higher air prices are on the wings. Management said it expects to recover almost all of the $800 million plus in extra fuel costs – and that means its customers will have to foot the bill.

Qantas is also targeting at least $400 million in savings from its transformation initiatives in FY19 although the savings will be skewed to the second half.

The airline’s chief executive Alan Joyce is also talking up Qantas’ outlook by noting that “market demand for travel remains fundamentally strong” and that its competitors are winding back capacity growth.

That’s welcomed news to shareholders as the Qantas share price has fallen 15% over the past year when the ASX 200 is down 3%.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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